L.A. Times sees the big bailout coming

The L.A. Times finally warms to the "big bailout is coming" story this morning, reporting in a front-page story, "Housing bailout gains backers."   The story by business ace Michael Hiltzik summarizes recent developments nicely and concludes the Barney Frank plan is "perhaps the one with the most political clout behind it."

Agreed: When Congress is through with it, the Frank plan will become a Christmas Tree in July bearing all manner of goodies for the homebuilding industry (tax incentives to buy now!), local governments (money to create new bureaucracies to buy and manage foreclosed properties!) and on and on.  The biggest giveaway will likely be to the biggest industry, financial services, which will unload bad mortgages at subsidized prices and probably get massive tax breaks on past income.

The story repeats one of those Washington half-truths ("border security!") that politicians seem to believe will somehow become true if only repeated again and again: "Any relief program will have to be carefully fashioned to focus only on deserving homeowners whose financial ills are no fault of their own."

A worthy but unrealistic goal; anybody in need of government help at the moment -- borrowers, lenders, builders, investors -- is there at least in part due to their own financial mistakes and miscalculations.  No one's in this sinking boat through "no fault of their own."

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.

Comments

[IToldu2CashOut]

If this bill passes I will find every person who voted for it and vote against them for the rest of my life. This makes me want to vomit. I plan on leaving the democratic party and voting independant or green from now on. Ralph Nader you will have at least one vote this election.

[anon1137]

The Bear Stearns bailout was not a bailout for BS shareholders, IT WAS A GIFT TO JP MORGAN SHAREHOLDERS.

[SOAngry]

Some charge me with a hate crime right now because I'm so angry and full of hate after reading this crap that's being sprewed by Hilary Clinton and Dumbo Frank.

Why am I being held responsible to bail out speculator and home debtors that took out that Home Line of Equity to buy a SUV, Big Screen TV, luxury vacation, etc? I have to rent a crap load and save so I can buy a home in the future. Now I'm tol d I have to bail out the big spenders and speculators??

Someone kill me, please.

[ExComi]

I think the problem is so huge the "bailout" will only prolong the bleading, but not fix it. Just wait little longer for the prices to gome down if we still have any iconomy left becides the government.

[AJ]

I don't have the link but just heard Phil Vassar''s
This is my life... This should be the theme song for the whole debacle! If you haven't listened to it please do...

[Ann]

Jeezus, Ann. Say it, don't spray it. Readers throwing usual fits? Umm. You must be speaking of yourself. At least you're consistent. Please, buy yourself a clue and an editor.

And check those spelling errors of yours - not unlike the ones you gleefully point out in other blogger's posts.

Get off yer F'n high horse before it throws you into black lagoon from which you emerged.

Posted by: Hula Girl

_________

Peter: What ever happened to your "no personal attacks rule"?

Ah yes there speaks Hula Girl, our 'I'm smarter than people in a Chicago Trib story but can't get the facts right when I post them " as to what is a subpoena or what is an Attorney General and criminal charges even as she boasts about her poli sci degree. Rude, nasty and never addresses the issue. (Wouldn't even hire as a clerical dto do the typing for me - nerve damage to a hand and shoulder does make it difficult.) Perhaps she needs to go get a life and not discuss matters beyond her comprehension.

I am right - they are throwing a fit and I can nearly guarantee you that NO ONE of them has gone and read the entire bill. They are relying on LA Times misleading summaries. It is much much more complicated than that.

And most certainly the ever-so-rude trashy-mouthed Hula Girl hasn't - but then in a post a month or two ago she already demonstrated that reading comprehension is not her forte.

Before they start throwing these fits, they had better grasp that the financial services industry internationally is rapidly approaching a complete breakdown.

Try a concept called "liquidity trap." Try a concept called "run on banks" (and yes it is happening among the lenders) and "margin calls." Try "monetary policy tools are not working." Of course understanding the implications of the TED rate does require some thought.

The bill would force prices down. So what else do these people want?

Are lower prices the desired result or is the real goal punishment for stupid borrowers and stupid lenders? They are not going to get a stable financial system the way things are going. 1929 was not exactly a good year - and the mortgage mess is rapidly collapsing the financial systems worldwide exactly the way the devaluation of securities (stocks and bonds) collapsed it in 1929.

If lower prices back in line with historical result from forcing down prices through short refis work AND it stabilizes the financial services, then it should be done.

If all those having a cow because they want to see fools punished more than they want the economy to keep functioning and the financial industry not fail ala 1929, then they need to get their priorities straight. Their jobs will go right down the chute too if that happens.

Prices are falling and will keep falling and not all the short refis in the world will stop that.

Doing short refis will not cost the taxpayers one dime. The original lenders lose. It will provide a basis from which to analyze the value of mortgage securities if the short refis estalbish a valuation. Right now there is no basis upon which to ascertain the value of the mortage securities as the actual value is in free fall and unknown. (Do NOT confuse the value of the house with the value of the mortgage security. They are 2 different things in the market.)

These people need to move beyond their desire for venagance and punishment and look at the consequences of failure of the financial markets. The bill will NOT prop up housing prices but it may help stop the inter-bank runs, the margin calls and forestall the liquidity trap that is rapidly approaching. If the financial system falls into cmplete disarry, they will have trouble getting a loan to buy even with an 800 FICO and 50 % down and a DTI of 20%.

[david]

What likely effects will these proposed federal bailouts have on home prices? Will they stop them from dropping?

[Peter]

Armchair quarterbacks..the whole lot of ya. Yea. We're ALL stupid! Washington and everyone on this blog is stupid. We're all just a bunch of dumb monkeys trying to make our way. This whole debacle is a result of non-regulation of a very dynamic economy. The politicos will eventually realize this & put some regs in place. And no, the answer is not unbridled capitalism. We are the economic engine of the world. We're not going to stand by and see what happens. Everybody is doing the best they can with what they have.
Stop whining, save your money, buy a foreclosure and worry about your side of the street .......or move to Costa Rica.
OK folks, lets move along, the shows over. There's nothing more to see here. Go back to work.

[SJ]

Hey Leavin LA,

Sitting what out? Sitting out buying a home that was way overpriced? Sitting out taking out a loan I could not pay off, thus being responsible and saving money for a downpayment once the much needed price correction begins? Sitting out refinancing a home with Flat screen TV's and new cars thus burning up all the equity?

You have it wrong and you cannot leave LA quick enough in my opinion.

The people against this bailout do not want a bailout at all, let alone a bailout for themselves. Why should we have money taken out of our paychecks to subsidize the people who had no business buying a home in the first place? How does that make ANY SENSE?

Any bailout would only prop up artificially high home prices and makes a much needed correction take longer than it should. Deadbeats wont learn their lesson!

It was THEIR GAMBLE that got everyone into this mess. It was not the responsible people who felt it best to wait for prices to inevitably correct themselves.

If you are so for a bailout, why wait for Congress? Why not got to the IE and write a check to a random person who is walking away from his home and tell him irrresonsibility makes you proud and want to personally give him your money?

[William Jones]

The cheap money policy we are using to help finance this bail-out punishes people who live frugally and save or invest. Our govt. and central bank are driving down the value of the dollar so low that anyone who holds onto it is a FOOL. Yields on CD's or other savings devices are below the rate of inflation, and even worse when taxation is factored in.

There is a one-two combination punch in govt. policy that I find deplorable - reward irresponsible lending and borrowing, and punish prudent saving.

[Michael Snyder]

For those of you who are just plain angry, I'd suggest you check out an article in today's http://www.nytimes.com/. Titled, "What Created this Monster". This six page article details the evolution of the derivatives market and finally places some of the responsibility for this mess where it belongs. For those of you with broken keyboards, they're not talking about liar loans & flippers, so if you're about blaming your neighbor, you won't get much in the way of agreement from this posting.
If you believe as I do that real estate is simply a symptom of a systematic failure this one will send you to the store for tar & feathers.

[Jeffrey Allen Miller NY]

I see two possible answers here: 1) When I was laid off for bashing Bush in patriotic 2003, there was no hope or help for me at a time I needed it most. Lost everything, but didn't actually go into debt. So, yes, it sucks the gov't will bail out a bunch of stupid over-spenders, which seems likely only for political reasons in election year '08. But, 2) now that I'm back on my feet (five years later) I'm going to take advantage of this situation... and perhaps others should too. You work hard to manage expenses and keep debt free, so figure out a way to get yourself a house. This is my focus now rather than being angry about the stupid people our very liberal gov't is going to help.

[Bots]

"If Washington gets off its high 'moral hazard' horse and moves to support housing prices, investors will return in a rush." -Bill Gross

Hey Bill, I wish I could say what I think you are, but I'll tell ya this... my dog sure makes lots of it.

[Bleepin Mad]

I am so BLEEPING mad and insulted over this!

After sitting on the sidelines and patiently saving my downpayment to finally buy my first house at age 50, I'm now told that first I have to bail out those who were completely irresponsible and living way beyond their means?!

SCREW ALL OF THERSE PEOPLE IN THIS ORDER:

1. The irresponsible homeowners who thought they were getting a free ride through life.

2. The greedy banks that rolled out the red carpet for them.

3. Every single politician flapping his or her gums about a government bailout.

[whiteyward]

Again the rich continue to strip equity from the USA. The phony house crisis is like the phony 9/11 attack. This is the effort of the rockafeller neocons to reduce many more of us to poverty so we can be controled. Take our jobs, take our homes, take our health care, send our children to bleed for oil or send them to corporate prisons because of a phony drug war. It is time to think of a national strike.

[are they crazy]

Society has become obsessed with buying houses. And, once they buy they have to immediately set about changing them - nothing they buy is good enough as is. What is the big deal with owning a house? I'd rather have my pile of cash and my time available to take advantage of options. I don't want to spend every non-employment minute working on a house. I'd rather travel, have down time, or time to take part in social and cultural events. Never had a rental that didn't feel like home through my personal possessions and attitude. Kids never knew the difference and our home was where all the kids wanted to hang out. Never had a rental that I didn't leave in better shape than when I came. Never minded spending my own money to make my home better even though I didn't own it. I'm betting that now when houses aren't instant ATMs and investment vehicles to make a fast buck, people won't care so much about owning them. I also suspect the moniker of "bitter renter" will disappear. There's no shame in renting and it's really nobody's business whether you rent or own.

[waitingforgodot]

Michael Synder,

Thanks for the heads up on the article.

[Jack]

The biggest reason I think a big bailout won't happen is this: there's no money in the kitty to pay for it. Bush's ridiculous war has increased the national debt to nearly $10 trillion. This year's deficit will be about $500 billion after the "rebate" meant to goose the economy. Bush will veto anything that raises any tax on the wealthy or business. Ergo, there's simply no money to pay for a bailout program. So Congress might pass something, but there won't be enough votes to override a White House veto. It will be an exercise in posturing and counter-posturing.

[kyle]

Let me get this straight: Are we really going to bankrupt the US to prop up a deck of cards?
The $50 trillion (today's NYT) credit default swap market is comprised mainly of financial institutions that traded the default risk of various financial instruments back and forth among themselves. The institutions that took on the risk received substantial remuneration yet lacked any ability to cough up in the event of a default. Why are taxpayers being forced to float this fraud? Couldn't we at least have some show trials and frog marching for the cameras?

Regarding taxpayers being compensated via the home mortgage deduction, the law of unintended consequences negates any interest rate deduction benefit. While the taxpayer does benefit from the deduction, they/we more than make up for it via higher mortgage interest rates and home prices. Simple economics demand that any benefit will be reflected in higher price. Nothing in life is truly free.

[Tombstone Realty]

If there are all these regulations and stipulations on this bailout program, then there is no way that there will be enough homeowners "saved" to keep the housing market from collapsing and causing a recession. I know I spend half my income just renting a studio - so imagine how few people in LA this will help. And it's already far too late for Cleveland and Detroit.

This is just to make politicians look 'proactive', and trying to convince americans that it'll all be okay soon.

When it most certainly will not.

[Michael Snyder]

kyle,
Yup!

[sfvrealestate]

Along with the NY Times article that Michael Snyder cited, here's another in today's NYT that I think is a must read: (sorry, no tiny url's, just cut and paste.)http://www.nytimes.com/2008/03/23/opinion/
23kristof.html?_r=1&ref=opinion&oref=slogin. For those of you that are really angry about any proposed bailout, I hope you're angry about this as well.

[MyLessThanPrimeBeef]

Michael Snyder, a better opportunity for Mr. Buffet is for him to blaze a new trail and create a new market, an US Treasury Bond insurance market - the outstanding US treasury bond market (at about $3.8 trillion circa 2003) is bigger than the Muni Bond Market (at about $2.6 trillion dollars and shrinking as California, New York City and 300 issuers have recently sold bonds without insurance).

Yes, Mr. Buffet makes mistakes like the rest of us, just much less often, but you are right, no one doubts his integrity. I suggest a better place for this rare quaity is the political arena. I would vote for him as our president and let's forget about the muni bond insurance market for him. He's rich enough. If I am not mistaken, his father was a congressman.

[LeavinLA]

SJ: you're pissed that you didn't get in early, make a big paper profit and cash out in time -- like sooo many did in this run up. A lot more people made money in this boom than lost it, I guarantee you.

Now you want someone to pat you on the head, hand you a tax break, and say "here's your reward for not trying to make any money."

How's that workin' for you?

[Michael Snyder]

MyLessThanPrimeBeef
If you caught Warren Buffet's recent interview on CNBC, he politely declined the invitation. It's a cryin' shame, but given the state of the fourth estate I can't blame him. Ever since Gary Hart a candidate's sex life is more important than their views on the issues. It seems as if personal dirt and gossip are the political rule of the day & in the end a minority of religious fanatics choose our leaders. Frankly I rather have a "player" who can own it than this "acceptable, allegedly monogamous" pile of corrupt garbage we've got running the show right now. Actually I think he's been faithful because his momma would whoop his a*s if he screwed around on his wife.

waitingforgodot,
Thanks for following up.